Analysts' Choice: Citizens: Best Of A Strong Bunch

9/11/2017


  Recent Price
$33
  Dividend
$0.72
  Yield
2.2%
  P/E Ratio
14
  Shares (millions)
507
  52-Week Price Range
$39.75 - $23.81

As a group, banks look like appealing investments. Regional banks in the S&P 1500 Index average Quadrix Overall scores of 74 and Value scores of 69. They've managed growth of 13% in sales and 21% in per-share profits over the last year and improved their return on equity by an average of nearly 0.5%.

Not bad. But even when choosing from within the top industries, why settle for average? Citizens Financial Group ($33; CFG), a Focus List Buy and Long-Term Buy, is far from ordinary. In the 12 months ended June, Citizens managed profit growth of 34% and fattened its return on equity by 1.5%, three times the industry average. Citizens earns an Overall score of 97 and a Value score of 91, along with ranks above 90 in both of our sector-specific scores.

Despite its superior profit growth — driven by strong demand for loans, increased profitability on those loans, and higher deposits — Citizens trades at 13 times expected 2017 profits, 19% below the industry average.

Citizens stands out

While weakness in U.S. banks' loan growth has been well-publicized, Citizens isn't having those problems. In the first half of 2017, Citizens delivered 7% growth in average loans, with strength in both retail and commercial.

Here are a few more nuggets of good news from Citizens:

• Return on equity (ROE) has been trending steadily higher for the last two years, reflecting both consistent growth in loans and deposits and increased profitability. Net interest margin, the spread between what Citizens charges for loans and what it pays out on deposits, rose to 2.97% in the June quarter from 2.86% in the same period a year earlier. The average regional bank saw less than half as much margin expansion.

• Average deposits rose 14% in the June quarter, a strong follow-up to the March quarter's 17% growth. Such growth bolsters Citizens' capital levels and liquidity — and has reduced the loans-to-deposit ratio to 97% from 99% at the end of 2016.

• Citizens' average loan yield rose to 3.8% in the June quarter, up from 3.7% in the March quarter and 3.5% in the June 2016 quarter. This improvement stems from both higher interest rates and a change in the business mix to favor assets with better risk-adjusted returns.

• Credit quality continues to improve. Nonpaying loans accounted for just 0.94% of total loans in the June quarter, down from 0.97% in the March quarter and 1.01% in the June 2016 quarter. Charge-offs for bad loans are on the decline.

• As of the end of June, Citizens said a 1% increase in interest rates would boost its revenue nearly 4%, well above the industry average of 2%. Few banks are in a better position to benefit from even a modest upward shift in the yield curve.

More growth expected

Citizens has topped the profit consensus in six straight quarters, and the 2017 consensus has increased 3% over the last 60 days. Analysts expect growth of 8% in revenue and 28% in per-share profits this year.

Obtain an annual report for Citizens Financial Group Inc. at 1 Citizens Plaza, Providence, RI 02903, (401) 456-7000, investor.citizensbank.com.

CITIZENS FINANCIAL GROUP
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Jun '17
0.63
vs.
0.46
12%
38.01
-
33.13
18 - 16
Mar '17
0.57
vs.
0.41
14%
39.75
-
32.99
20 - 17
Dec '16
0.55
vs.
0.42
11%
36.56
-
24.22
20 - 13
Sep '16
0.52
vs.
0.40
14%
25.11
-
18.58
15 - 11
           
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2016
5.76
1.93
0.46
36.56
-
18.04
19 - 9
2015
5.28
1.61
0.40
28.71
-
21.14
18 - 13
2014
5.05
1.42
0.10
25.60
-
21.35
18 - 15
2013
5.13
1.20
NA
NA
NA
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
94
91
74
99
76
33

   * Earnings exclude special items.
   † Quadrix scores are percentile ranks, with 100 the best.


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